1 Jan
To many, the word “audit” comes with a bit of dread. However, by performing your own personal audit during tax season, you can actually save hundreds, even thousands of dollars each year!
Auditing your personal finances is a great way to save during tax season. Auditing your finances means going through your spending and paying attention to things like regular monthly spending, higher than usual spending, and one-time expenses. Basically anything related to your personal finances must be looked at.
Performing a personal audit can help you get an idea of monthly spending patterns and financial habits. By auditing, you may be able to save money by identifying unhealthy financial habits and patterns, unnecessary spending and splurges, and late payments.
The first time you audit your finances may be a bit overwhelming, but once you get in the habit of performing annual audits, everything should be more organized. It’s remarkable how much unnecessary spending you may be doing. Even though it’s difficult, and requires a lot of work, an audit is completely worth the money you will be able to save.
- Identify Necessary Spending
You should analyze your monthly spending first by identifying how much you spend each month on necessary and predictable payments, such as your mortgage payment, car payment, insurance payments, and utility bills. You can keep track of these payments using an excel spreadsheet, or other secured financial management services.
- Analyze Spending
Once you’ve determined how much money you need to spend each month, it’s time to look at other spending, such as groceries, travel, debt repayment, monthly subscriptions, entertainment, shopping, pets, kids, etcetera. While these payments are also necessary, there are often creative ways you can cut back on spending. When you record these kinds of expenses, strategies for saving and avoiding spending unnecessarily often become quite apparent.
- Avoid Distraction
When you are auditing your finances, you should treat it like a job. It’s easy to leave it until the evening, but you will be less focused and alert at this time. Set some time aside in the morning or afternoon when there will be less distractions. Make sure you’re properly nourished, make a cup of coffee, and dedicate yourself to a few hours of work.
- Embrace Technology
There are lots of apps that allow you to track your spending. Your banking app may even provide this feature. There are even specific apps to track what you spend on specific things such as groceries. Some apps also alert you when your spending is going higher than usual. Do some research, and find an app that works for you. Since these apps track your spending, they’ll make it a lot easier to spot financial patterns, and correct them.
- Watch Your Credit
A financial audit also gives you a chance to look at your credit card bills and spot any habitual late payments. You should also find out what your credit score is, and if it’s lower than you’d like, create strategies for better debt repayment. Your credit score is really important. Even if you aren’t planning on applying for a loan anytime soon, you never know when you may need a good credit score. During your annual audit, identify where you could do better when it comes to personal credit.
- Find New Ways to Save
One of the benefits of auditing your finances is that it quickly becomes very clear where you are overspending. Even smaller purchases like the occasional meal out can add up quickly, especially if you aren’t keeping track of them. If you notice that you are spending too much money on eating out, try to create a strategy for saving in this area. For example, you could decide to restrict eating out to just once a week, or once every two weeks, and try to cook more. It may seem like a small change, but you’ll be surprised at how quickly it can make a difference.
- Assess Subscriptions
There are so many things we sign up for these days, such as entertainment subscriptions like Netflix or Spotify. Since these are just small monthly payments, we often forget about them. During your audit, you can take a look at how much you are spending on these subscriptions and cancel the ones you don’t use. For example, if you have both Spotify and Apple Music, you may want to cancel one subscription.
When it comes to saving money, it’s the little bits here and there that can often make a difference. While large payments like mortgages or car payments are usually non-negotiable, you can find creative ways to save on things like groceries, shopping and debt repayment.
Doing a personal audit isn’t necessarily a pleasant way to spend your time, but it’s absolutely worthwhile once you consider the improvements you can make to your spending. Everyone’s spending can get out of hand sometimes. This tax season, perform a personal audit and create healthier financial habits!